Auto-enrolment Pension Scheme

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Published: 17th June 2015
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There are various ways to put money aside for your twilight years as there are many different types of pension scheme. Any saving for retirement that is arranged by an employer is called a workplace pension, which can fall into a number of categories: occupational, works, company or work based, for example. Workplace pensions work by automatically deducting your pay by a small percentage which goes into the pension scheme in order for you to be paid an income when you retire. Often, an employer and the government add money into the pension scheme too. Workplace pensions are designed to provide security later in life during retirement, which is why for the most part; money can't be taken from the fund until the employee is at least 55.

According to the government, many workers have been missing out on pension benefits because they failed to apply to join their employer's scheme or they were not offered access to a workplace scheme. It is because of this that the government decided to make automatic enrolment compulsory.

Automatic enrolment requires employers to automatically enrol any eligible jobholders into a workplace pension scheme. This scheme must meet certain requirements and employers will also have to provide a minimum employer contribution. All arrangements are entirely the employer's responsibility.

The scheme is being phased in, with larger companies having earlier 'staging dates' (the date it becomes effective for them) and smaller companies later ones. Staging dates for all companies are being staggered over six years with more and more employers being included with each month. Eventually, it will extend to employers with just one worker.

The 'earnings trigger' or level of earnings to qualify an employee for automatic enrolment is 8,105 or higher a year. Other eligibility conditions include age; the employee must be aged from 22 to state pension age. People who do not earn the required amount to qualify for auto-enrolment can choose to opt into the scheme but their employer is not obligated to make a contribution.

For all workplace pension schemes, the minimum contribution level is 8% of all qualifying earnings, 3% of which the employer must pay as a minimum. The employer can pay more, in which case the individual will make up the difference and they will receive tax relief on all their contributions. This contribution level is being phased in with a gradual increase so as to help employers adjust to the costs.

For some employers, preparing for the new plans has meant a lot of work. Those without pension schemes had to create one and many companies have chosen to keep existing schemes and set up a separate auto-enrolment pension in addition. Usually, staff will be able to move to the main scheme after a specified amount of time has passed.

For employees, there is the possibility of opting out of the scheme; they will be allowed to leave it at any time. To get their contributions back however, an employee has to leave the scheme within one month, otherwise, contributions made from their wages and any made by their employer will stay in their pension pot. It is also noteworthy, that employees will be auto-enrolled every three years and every time they change employers.

Matt Crumble works for PBS, a specialist in payroll outsourcing and HR outsourcing for small businesses. The PBS website offers guidance about employers hr documents and a free, downloadable guide to the Right to request training at work.

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